Bankruptcy Tourism in Britain

Bankruptcy tourism is the practice of individuals or companies coming to Britain to go bankrupt or into liquidation. The term was first coined by bankruptcy registrars in 2006/07 when they began to notice high numbers of foreign, particularly German, individuals declaring bankruptcy in the UK. When you look at the German bankruptcy legislation you can see why; German bankruptcy restrictions last for 6 years, British restrictions last only 12 months.

Britain was one of the first European countries to introduce more lenient insolvency legislation by way of the Enterprise Act 2002. This encouraged businesses and individuals to get back on their feet after a failure more quickly and efficiently than before. Of particular interest to individuals was the reduction of the bankruptcy term from 3 years to 12 months and the advanced individual voluntary arrangement regime. Also the revised Administration legislation made the rescue of a business quicker, easier and cheaper.

This made other European jurisdictions’ regulations look draconian and this is still true even though changes are occurring in other European countries. For example bankruptcy in Ireland used to last 12 years, since last year it only lasts 3. Nevertheless Britain’s insolvency laws are still more lenient and more entrepreneur-friendly.

To enable an individual or business to take advantage of Britain’s insolvency laws their Centre of Main Interest (‘COMI’) must be in Britain and must have been in Britain for a while. A rough rule of thumb is at least 6 months. So, it makes sense to consider if a company or individual’s COMI can easily and properly be moved to Britain to take advantage of the more lenient regime.

Creditors can challenge the insolvency proceedings if they feel false claims about the COMI have been made, and they do. A high-profile Irish businessman, Sean Quinn, filed for bankruptcy in Northern Ireland and therefore under UK law. However his largest creditor, Allied Irish Bank, argued that there was a ‘huge credibility issue’ over Mr Quinn’s claim that his office was north of the border. The Bank won, Mr Quinn was forced to become bankrupt in the Republic of Ireland and was sent to prison for nine weeks after being found guilty of contempt of Court. In another case the bankruptcy of a Mr Armutcu was annulled when it was deemed that he still had significant business interests in Germany and was not earning a viable living in England. In contrast, Wind Hellas was a Greek telecoms group that properly went into liquidation three months after relocating to Britain.

Scrutiny into the actual site of the COMI from the British Courts is becoming tougher but where COMI is properly established in Britain then our insolvency laws usually remain preferable to those of our European neighbours.

RNF has experience of cross-border insolvencies and has specific expertise in Scandinavian and North European matters. As an example Filippa Connor was appointed as Trustee in Bankruptcy by Danske Bank to investigate and, if appropriate recover, the assets of a debtor with interests in Denmark, Germany, England and France. Please contact our team to discuss any cross-jurisdictional issues that you or your clients may have.

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